by Pigpen
“One of the saddest lessons of history is this: If we’ve been bamboozled long enough, we tend to reject any evidence of the bamboozle. We’re no longer interested in finding out the truth. The bamboozle has captured us. It is simply too painful to acknowledge — even to ourselves — that we’ve been so credulous.” — Carl Sagan
Dr. Sagan, thank you, your voice from the cosmos is heard. The big bamboozle that we need to painfully acknowledge, if only to ourselves, is that somehow we have been duped into believing that our leaders know what they are doing. Perhaps we could kindly call this “hero worship,” but it is more accurately described as the tyranny of the experts. Our culture is infatuated with heroes, and blinded by the fact that our leaders claim to be experts, but that in reality know nothing and are consistently wrong.
Bill King echoes Sagan’s brilliance in his discussion of the soon to be released stress test of the country’s largest 19 financial institutions. “A major problem with the ‘stress test’ is it depends on modeling and it’s the precise practice responsible for much of this economic and financial mess. It’s extraordinary that so many people believe that the Fed and Treasury, after missing the financial disaster, housing debacle, recession and derivative implosion, can now extrapolate economic conditions and resultant financial affects from its models. How did all that rocket-science modeling for subprime defaults and securitization workout? Yet many people already forget or ignore this reality.” They don’t know what their doing with these models, they don’t represent the real world, but they are going to go by them and pretend that they’re not WRONG.
So, who are these tyrants, and why do we listen to them at all? Why do they have so much power when they are consistently wrong? Its because we citizens, the body politic, fail to call them out when they are categorically, unqualifiedly, and are consistently wrong. The list of tyrannical experts is innumerable so we will direct our attention on Ben Bernanke, Timothy Geithner, and Hank Paulson.
Henry Paulson: the Grand Vizier of the Most Sacred Temple of Goldman
In 2000, Hank Paulson was the architect of changing the SEC rules regarding the leverage ratios and risk profiles of the investment banks. Investment banks, prior to the Paulson SEC change, were only allowed to be levered $12 for every $1 of capital that they owned. In that scenario, if a bank’s assets went down 8.3% then the bank would be technically insolvent. Hank had the brilliant foresight to petition the SEC to allow for more self-regulation on Wall Street and allow his banks and others to lever $40 for every $1 of capital. In this scenario, a 2.5% decrease in assets wipes out the banks equity and the bank becomes insolvent.
So when you hear Paulson tell you that the reason for the problem we are in is housing, please realize he is lying to you. He is not just mistaken. He is lying to you. He knows better. Any investment can drop 20, 30, 40% without causing catastrophe. It is the leveraging up of these declining assets at 40 to 1 ratios that caused the problem. Hank Paulson was the pointman in creating this leverage. HE WUZ WRONG.
So, not only has Hammerin’ Hank been dead wrong, but he also used this financial crisis as a tool to consolidate more power and influence into the house of Goldman Sachs. Notice which bank received the most money through the AIG back door bailouts. Notice which bank was NOT saddled with a government mandated merger/acquisition of another bank riddled with toxic assets. “Hi, I’m Hank Paulson, nice to meet you. Listen, I just want to let you know that I will protect any Goldman Sachs counterparty with an unlimited amount of US taxpayer money.” It has almost become too easy to pick on Goldman Sachs, as it is clear as the day is long that this has been an inside job, yet no credible reporter other than japer Jon Stewart, nor any elected official other than Maxine Waters has mentioned it. Maxine, we love you and we know you are dealing with complex issues and insidious connections, but we wish you were a bit more educated on the matter when you do discuss the Goldman swindle.
But Maxine’s ignorance is at the crux of the issue of our reliance on tyrannical “experts.” The financial world is too complex for most Americans to understand and it is that way by design. Adam Tabibi from Rolling Stone describes it fiercely:
“As complex as all the finances are, the politics aren’t hard to follow. By creating an urgent crisis that can only be solved by those fluent in a language too complex for ordinary people to understand, the Wall Street crowd has turned the vast majority of Americans into non-participants in their own political future. There is a reason it used to be a crime in the Confederate states to teach a slave to read: Literacy is power. In the age of the CDS and CDO, most of us are financial illiterates. By making an already too-complex economy even more complex, Wall Street has used the crisis to effect a historic, revolutionary change in our political system — transforming a democracy into a two-tiered state, one with plugged-in financial bureaucrats above and clueless customers below.”
The citizenry is the clueless customer. We just keep our heads down, watch a little TV, maybe play some golf or go fishing on the weekend, and dutifully pay our taxes. So, are we delusional or indifferent? The reason deception sells is that so many people line up for it.
Timothy “turbo tax override deductions” Geithner:
As the former head of the NY Federal Reserve and chief regulator for all the big money center NYC banks, Turbo has failed at his job as a regulator. This is too obvious. Rather than going into dark detail here, please refer to a previous Barricade post: The Fed is the Biggest Failed Regulator. But, instead of being fired or resigning due to abject failure and shame, Timothy was promoted to the top financial job in the land - Secretary of Treasury. Please, read that again slowly for effect.
“Helicopter” Ben Bernanke
“Helicopter” Ben Bernanke, as in “I will drop money from helicopters to stop deflation,” has been the architect of every silly program with alphabet letters that we have seen to date. Ben should be working on Madison Avenue designing cool acronyms for toilet paper companies, but instead he runs one the most powerful public institution in the U.S. Economy and also the most secretive: The Federal Reserve Bank of the United States. Also significant is the fact that Chairman of the Fed is a political appointment, rather than an elected post. Funny how that happens - all the power in the world resides with people who are unelected. (I am going to reread my constitution and try to figure out which section allows for all this concentration of power in the hands of a banking oligarchy.)
Here are just a few of the comments Ben Bernanke has made that if anyone else would have made such lousy predictions they would have been fired with no hope of employment in the financial industry.
1.The Fed assumed house prices were increasing due to income gains . WRONG
2.The Fed assumed the housing mess was limited to subprime and that losses to the system would be between $50 - $100 billion max. SO WRONG (- he will likely be off by about $4 trillion with a T - that is a very large number)
3. The Fed assumed that bankers were writing good loans based on sound economic demand not bubble demand. WRONG on so many levels
4. The Fed assumed that derivatives made the system safer. SO WRONG I don’t know where to begin
5. The Fed assumed that additional leverage in the system would beneficially increase economic activity. 40x WRONG
6. The Fed assumed household debt levels we appropriate. WRONG
7. The Fed assumed that stocks were fairly valued with their inane “fed model” WRONG
8. The Fed assumed that bankers would act responsibly WRONG WRONG WRONG (but I do hope for and look forward to show-trials of bankers)
So, how have Bernanke and Geithner done in terms of management of their new hedge fund - the FED balance sheet? The Federal Reserve took on more than $74 billion in subprime mortgages, depreciating commercial leases and other assets after Bear Stearns Cos. and American International Group Inc. collapsed. Translate: the FED paid $74 billion for SHIT.Instead of Bear or AIG taking the loss, we the taxpayer will likely take the loss. In its biggest disclosure of the securities accepted to stabilize capital markets, the Fed said yesterday it had unrealized losses of $9.6 billion on the assets as of Dec. 31, 2008. Do you think those positions have improved since that date? If you do please, please email or comment on this blog and tell me where I can get some of those mushrooms. “The numbers basically confirm that Treasury (U.S. Gov’t) is going to have to take some TARP money and reimburse the Fed,” said Chris Whalen, whose financial-services research company analyzes banks for investors. “It is essentially up to the Treasury to get the Fed out of this.”
The FED has lent $2 trillion to financial institutions and hasn’t disclosed information about most of the collateral backing those loans. When these loans blow up, who do you think is going to reimburse the FED for their losses. You see, that’s very large number, folks, and another sign that we are doomed is that the citizenry is no longer stupefied and befuddled at the mention of the word “trillion”. Regardless, the U.S. Taxpayer is the sucker and loser of only resort. To summarize, instead of banks going out of business and into bankruptcy, the FED is buying all of their garbage assets and when the FED fails it will go to the US. Govt - aka the US taxpayer, and you will have you pay them back. So, losers are us taxpayers and winners are investors in banks who are constantly made whole. Does that seem perverse? These events suggest that the big bankers are untouchable, as they are unelected and are simply shills for the true power structure, the elite financial oligarchs that control our country. They are unaccountable, and are never fired for being so WRONG.
I would like to close on a positive note. It was revealed this week by CEO of Bank America Ken Lewis that he was pressured by Paulson and Bernanke to keep quiet about the losses at Merrill Lynch and to continue with the merger knowing it was full of toxic crap. Ken Lewis’s fiduciary duty is to his shareholders and not to his regulators. According to Lynn Turner, former chief accountant at the SEC, if these allegations are proven true, both Bernanke and Paulson should be prosecuted by the SEC to the fullest extent of the law.Now that my friends would be some must see TV or as the readers of US Weekly can appreciate - our financial oligarch elites do the same things as regular people and they are just like us. So next time you see one of the tryrannical experts, please do me a favor and ridicule them as they WUZ WRONG. Snicker at them and make fun of them and let them know you are on to them and they are simply mouthpieces for the elite banking oligarchs and they are WRONG
